New Delhi: An unprecedented contraction in exports that has already continued for 10 successive months was the backdrop against which commerce and industry minister Anand Sharma on Thursday presented a new foreign trade policy whose highlights include tax refunds for exporters, lower transaction costs, promises of better export infrastructure—and a broader strategy to ship more Indian goods and services to new markets in Latin America, Oceania and Africa instead of traditional, but recession-stricken markets in Europe and North America.
Sharma said it was a “daunting task” to announce a foreign trade policy in such trying times, and was non-committal on the chances of an early revival in exports. “Even though economists are talking of emergence of ‘green shoots’, I remain hesitant to hazard a guess on the nature and extent of this recovery and whether it is a V-shape recovery or a U-shape recovery,” he said.
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The minister said that merchandise exports would grow by 15% to $200 billion (Rs9.8 trillion) in 2010-11, a target originally set for 2008-09. In the current fiscal year, he said, it would be an achievement to meet last year’s level of exports of $168 billion, given that global trade is projected to contract between 9-11% in 2009.
At the same time, he set an ambitious target of doubling India’s exports of goods and services by 2014. “In the remaining three years of this foreign trade policy, the country should be able to come back on the high export growth path of around 25% per annum,” he said. The trade policy announced by Sharma is meant for two years starting the current fiscal, against the customary five-year trade policy.
Accepting a long-standing demand, exporters have been assured that their need for dollar credit, especially to the small and medium enterprises, will be met in a timely manner. A committee has been set up comprising the finance secretary, commerce secretary and chairman of the Indian Banks’ Association to oversee implementation.
Apart from a slew of fiscal incentives, Sharma announced measures to diversify export markets. To lower transaction costs, the application fee to access any incentive scheme has been done away with. Exporters have also been assured that the commerce and industry ministry will fast track its plan for electronic transaction that would facilitate faster export and import clearances.
While exporters in general welcomed the trade policy, trade experts were critical of the fact that the policy lacked long-term vision.
Federation of Indian Export Organisations president A. Sakthivel said the new policy rightly put emphasis on market diversification “as our traditional exports have been hit badly due to their concentration in US and EU regions”. He added that the identification of 26 new markets under focus market scheme (FMS), additional 13 under market linked focus product scheme, increase in the benefit of FMS from 2% to 3% and organizing “Made in India Show” in at least six countries every year will encourage exporters to diversify.
Similarly, the Federation of Indian Chambers of Commerce and Industry (Ficci) welcomed the measures to help labour-intensive sectors. Ficci president Harsh Pati Singhania said: “While enhanced benefits for market development and promotion schemes would enable the exporting community to explore new export destinations, incentives for technological upgradation such as zero duty EPCG benefit and 1% additional duty credit for status holders for several important sectors would greatly help in stepping up India’s competitiveness.” EPCG is the export promotion capital goods scheme.
The Apparel Export Promotion Council chairman Rakesh Vaid, however, said the measures are inadequate. “These measures do not compensate for a comprehensive and competitiveness enhancement strategy in the form of a stimulus package as Indian goods are over 20% costlier than those supplied by some competing countries like China, Bangladesh, Vietnam and Cambodia.” The higher cost is due to higher credit rates, wages for labour and transaction costs, he said.
According to K.T. Chacko, director of Delhi-based Indian Institute of Foreign Trade, while the pillars of foreign trade growth—infrastructure, reimbursement of duties and reduction in transaction costs —have been addressed, the policy has restricted itself to the near-term objective of sustaining the current level of exports.
According to Arpita Mukherjee, professor at the Indian Council for Research on International Economic Relations, a New Delhi-based think tank, mere fiscal incentives will not spur export growth. “Today, the core problem is that there is no demand for our export products because of global recession. So what we need to do is to make our exports more competitive so that we score over our competitors. For this, our logistics costs have to come down from current 13% to 8%, which is the cost internationally.” She added that for this all, related ministries have to come together and improve facilitation of exports as well as imports.
Graphics by Sandeep Bhatnagar / Mint